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Bank: Rogue trader hacked computers

PARIS, France (CNN) — The trader accused of making fraudulent transactions that cost Societe Generale 4.9 billion ($7.2 billion) hacked computers and used several techniques of fraud, the French banking giant has said.

In a five-page document, Societe Generale rebutted suggestions it had disrupted markets as it unravelled the $73.5 billion in bets placed on European markets by the 31-year-old trader.

The bank took three days last week to sell the contracts on the Eurostoxx, DAX and FTSE indices at a loss of $7.21 billion, but it insisted Sunday it did so in a controlled way.

Chief executive Jean-Pierre Mustier said Kerviel appeared not to have profited personally from the transactions and worked alone. But The Associated Press reported him as saying: I cannot guarantee to you 100 percent that there was no complicity.

Kerviel was taken into custody on Saturday and under French judicial law he can be held until Monday afternoon.

Kerviel is accused of making fraudulent transactions involving European index futures that were beyond his permitted trading limits, then creating false transactions to cover his tracks.

He was being questioned at the Brigade Financiere offices, the financial division of the national police.

Speaking on the matter at the World Economic Forum in Davos, Switzerland, French Finance Minister Christine Lagarde said she would meet French banking regulators Monday to begin establishing a timeline of events that led to the massive trading loss.

The bank discovered the fraud last weekend and confirmed it was an isolated case. It said the employee, who had worked for Societe Generale since 2000, had confessed and would be dismissed, and that his supervisors would also leave the company.

Societe Generale Chief Executive Daniel Bouton has said the trader set up a fictitious company and used that to trade futures. His risky trades then racked up losses.

The trader used his knowledge of the company’s control procedures to elude detection, Bouton said. The man knew the times he was likely to be checked and avoided fraudulent activity during those times, he said.

Bouton said it did not appear that the trader made money from his transactions, and that he may have been trying to cover up losses.

Still, as a result of the fraud, Societe Generale announced it was selling 5.5 billion ($8 billion) to raise capital.

Merrill Lynch CEO John Thain, also speaking in Davos Saturday, called the situation a CEO’s worst nightmare.

We will certainly go back and try to understand how this happened to make sure it can’t happen, but again, no systems can prevent fraud, you just want to catch it as quickly as you can, Thain said.

Societe Generale said it would post additional writedowns of 2.05 billion ($2.99 billion) because of exposure to the U.S. subprime mortgage crisis. It means the bank would devalue its assets because it had bought U.S. subprime mortgages which might not be repaid.

The fraud at Societe General is the largest-ever fraud by an individual in the securities business. It eclipses the case of British trader Nick Leeson, whose losses of more than $1.6 billion led to the collapse of Barings Bank. Read about previous scandals

It is also bigger than the case of Yasuo Hamanako, a Japanese copper trader whose risky bets on copper futures in the late 80s and early 90s cost the Sumitomo Copper company $2.6 billion. He was nicknamed Mr. Five Percent because at one time he was said to have controlled five percent of the world copper market.
Bank: Rogue trader hacked computers – found here.

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January 27, 2008 - Posted by | Uncategorized

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